Nation aims to extend negative list approach for foreign investment

China will adopt a negative list approach for foreign investment across its economy this year, and will test the approach on domestic firms, a senior official with the country's top economic planner said Friday, in a move signaling further easing of restrictions on foreign investment.

The negative list approach to foreign investment will be promoted in comprehensive fashion, and negative list trials will also be launched for domestic investment, Lian Weiliang, deputy head of the National Development and Reform Commission (NDRC), said at a press briefing in Beijing on Friday.

"This comment by a NDRC top official sends a message that China will aim to extend the 'negative list' management approach to foreign investment nationwide," Bai Ming, a research fellow at the Chinese Academy of International Trade and Economic Cooperation, told the Global Times Friday.

China first introduced a "negative list" approach for foreign investment in the Shanghai free trade zone (FTZ), which was launched in September 2013. The approach guarantees that foreign companies can invest without any restriction in any sector not on the list.

In December 2014, China announced that specific areas in South China's Guangdong Province, North China's Tianjin and East China's Fujian Province will also be designated free trade zones. The three new FTZs will also adopt the "negative list" approach. However, elsewhere foreign investment will remain subject to restrictions.

"In China's reform blueprint, not only foreign investment but all economic activities and sectors will be gradually subject to the negative list management approach," Bai said.

But whether the negative list approach will be extended nationwide by the end of this year depends on whether the approach will be written into amendments to three laws governing foreign investment in China, Bai said.

China sought public comment on the draft versions of amendments to laws on Sino-foreign joint ventures, foreign-funded companies, and Sino-foreign joint enterprises at the beginning of the year. The final versions of the amended laws are yet to be announced.

In a sign of further opening of China's economy, in March, the NDRC and the Ministry of Commerce's 2015 version of the Foreign Investment Industrial Guidance Catalogue cuts the number of sectors that limit foreign investment from 79 to 38, opening up sectors such as steel, oil refining, paper making and automotive electronic integrated systems.

Meanwhile, on March 26, the State Administration of Foreign Exchange raised the $1 billion investment quota limit for overseas fund management companies under the qualified foreign institutional investor program, as part of efforts to further open up the country's capital market.

China is now entering the third phase in its effort to attract foreign investment, Zhao Yongsheng, a Paris-based economist, told the Global Times Friday. Compared with earlier years when foreign investors enjoyed preferential treatment in China, or the last few years when they operated under implicit regulatory regimes, it is now time for China to clearly define regulatory boundaries, Zhao said, saying the negative list approach is a feasible way to advance this goal.

Zhao added that it is also important to make the foreign investment regulatory rules consistent and improve services in industrial parks and FTZs to retain the foreign companies already present in China.